Loans are offered by lenders based on your CIBIL score. If you apply for a loan or a credit card, besides the other eligibility parameters, your credit score would be checked and only if you have a score more than the minimum score mentioned by the lender would the loan be allowed. Since your credit score is so important at the time of loans, it is important for you to improve and maintain your credit score. Do you know how to improve CIBIL score?

Before we delve into how to improve CIBIL score, let’s first understand what the score is all about.

What is the credit score?

Credit score, or CIBIL score as it is popularly called, is the score that measures your creditworthiness. This score helps the lender understand how worthy are you of availing credit. It shows whether you would repay the loan on time or not. The score starts at 300 and goes up to 900. To avail a loan, you need a credit score of 650+ which shows the lender that you are a good borrower who would repay the loan on time.

How to calculate a credit score?

Your credit score is calculated by authorized credit bureaus like TransUnion CIBIL, Experian, Equifax, etc. Moreover, there are online websites and mobile apps which help you in calculating your free credit score by entering in your details. Your credit score is calculated using the below-mentioned factors –

  • Your credit history
  • The history of repayment of your past and present loans and credit cards
  • The types of credit you have availed to date
  • Your credit usage
  • Enquiries on your credit score

All these factors are taken into consideration in the calculation of your credit score and then your score is calculated.

How to improve your CIBIL score?

While you can calculate your credit score online, the score is dynamic in nature. You can take steps to improve CIBIL score if you want a high score to easily avail a loan. So, here are some simple ways that would help you understand how to increase CIBIL score. If you use these ways, you can increase CIBIL score as well as maintain it for quicker loan approvals –

10 ways to improve CIBIL score

1. Repay your loans on time

The first and the most important way to maintain a high CIBIL score is to pay off your credit dues on time, every time. If you have a loan in your name, pay the EMIs within the due date without any default. Similarly, if you own and use credit cards, pay off their bills, fully, within the due date without fail. If your repayment history is clean, you would be able to increase CIBIL score.

2. Keep your credit utilisation ratio low

Credit utilisation means the credit that you have used against the credit allowed. You are allowed a credit limit by the lender when you avail a credit card or take a loan. Against the allowed limit, the amount of credit that you actually use determines your credit utilisation ratio. The calculation of credit utilisation ratio is done as follows –

Credit utilisation ratio = (Credit used / Credit allowed) * 100
A high ratio is bad for your credit score because it depicts a higher dependency on credit. So, try and keep your credit utilisation ratio low so that your score becomes high.

3. Have a healthy mix of credit products in your portfolio

If you are availing loans and credit cards, mix them up. Personal loans and credit card debt are unsecured loans while car loans, home loans, education loans, etc. are secured loans. If you favour either type of loan, your credit portfolio would be concentrated and your credit mix would be affected. So, try and opt for a mix of secured and unsecured loans in your portfolio so that you can have a healthy credit mix.

4. Do not close old credit cards

Having multiple credit cards is not uncommon and if you are one who has many credit cards in your name, do not close the older card. The more the number of credit cards that you have the higher would be the credit limit allowed to you. Against this limit, if you use a limited credit, your credit utilisation ratio would be high which would have a positive impact on your credit score. Multiple credit cards, therefore, help in maintaining a high credit utilisation ratio and should not be closed.

5. Pay your utility bills on time

Besides credit dues, payment of your utility bills also impacts your credit score. Defaulting on your utility payments has a negative impact on your credit score and so you should pay off your utility bills on time to improve CIBIL score.

6. Do not make multiple loan applications

Every time you apply for a loan, a hard enquiry is made into your credit score by the lender. Too many hard enquiries, within a short period of time, negatively impact your credit score. So, if you want a loan, check the different options and make one application. For subsequent loans, wait for some time before applying so that too many enquiries into your credit report are not done.

7. Have a credit history

To have a credit score you need a credit history. So, have one or the other form of credit in your name so that you have a credit history based on which the credit score can be calculated.

8. Avoid joint loan applications

Joint loan applications can be bad for your credit score. When you are a joint applicant, your score is intertwined with the score of the other applicant. If the other applicant makes a default in payment of the loan, your credit score would also suffer. So, try and avoid joint loan applications and if you make a joint application, ensure that the loan is repaid on time.

9. Keep track of your credit score regularly

You should check your credit score regularly so that you can improve it if needed. When you check your score, it is called a soft inquiry and it does not affect your credit score. So, keeping track of the score is important so that you can improve it if needed.

10. Get errors rectified

Usually, your credit report is prepared with utmost care but in some cases, there might be wrongful entries in the report which have a negative impact on your score. So, when you keep a check on your credit report, you can weed out any errors and if there is an error, you can get it rectified so that your credit score is not unnecessarily hampered.

Importance of a good CIBIL score

Having a good credit score is always recommended because a good score gives you many benefits. These benefits include the following –

  • Easy approval of your loan application
  • Wide choice of loan deals
  • Access to a higher quantum of loan
  • Possibility of availing low interest rates
  • Scope of negotiating the interest rate with the lender to fix the most reasonable rate
  • No restricting terms and conditions on availing the loan
  • Instant loan sanctions

So, you should always try and maintain a high credit score so that when you need a loan, you face no hiccups and get the funds easily. Keep a tab on your CIBIL score so that you can take corrective measures when the score reduces. Calculate your credit score online, free of cost and check it every six months.

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Frequently Asked Questions

Is checking CIBIL score chargeable?

There are different websites and mobile applications, like the Navi app, which allow you to check your CIBIL score free of cost. However, if you want a full credit report, the report would be prepared and issued by authorized credit bureaus and that would cost money.

What is the best credit score for getting a loan?

Lenders allow loans if you have a credit score of 650 or 700 and above. However, under some loans a score of 750 or above is needed. So, check the eligibility parameters of the lender to find out the minimum score required.

I have three credit cards and I don’t use two of them. Should I close them?

No, try and maintain your credit cards even if you don’t use them. This is because each card allows you a credit limit and the higher the credit limit the lower would be your credit utilisation ratio which would, in turn, give you a high credit score. So, maintain your cards for maintaining your CIBIL score.

For how long does past credit reflect on my credit report?

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